US budget deficit reaches $2.77 trillion in 2021, its 2nd highest ever

House votes to increase country's debt limit

House members voted Tuesday evening to raise the debt ceiling.

WASHINGTON (AP) - The U.S. budget deficit totaled $2.77 trillion for 2021, the second highest on record but an improvement from the all-time high of $3.13 trillion reached in 2020. The deficits in both years reflect trillions of dollars in government spending to counteract the devastating effects of a global pandemic.

The Biden administration said Friday that the 2021 deficit, for the budget year that ended Sept. 30 was $360 billion lower than 2020 as a recovering economy boosted revenues, helping to offset government spending from pandemic relief efforts.

Before the deficit ballooned during two years of a global pandemic, the highest the biggest deficit had been a shortfall of $1.4 trillion in 2009 as the U.S. spent heavily to lift the country out of a severe recession following the 2008 financial crisis.

For 2021, the joint report from Treasury and the Office of Management and Budget said that government spending increased 4.1% to $6.82 trillion. This was offset by an increase of 18.3% in government revenues, a gain that reflected an improving economy as millions of people who had lost jobs at the start of the pandemic went back to work and corporate profits were rejuvenated after a horrendous 2020.

"Under President Biden's leadership, the U.S. economy is getting back on track and Americans are getting back to work," Treasury Secretary Janet Yellen and Shalanda Young, acting director of the Office of Management and Budget, said in a joint statement.

The non-partisan Congressional Budget Office expects the deficit will fall to $1.15 trillion in the current budget year, which began Oct. 1, and will dip below $1 trillion for three years from 2023 through 2025 before rising again above $1 trillion for each year through 2031.

That forecast does not include the spending that will occur if Biden is able to get two pending measures through Congress, a $1 trillion proposal for traditional infrastructure projects such as roads and bridges and his plan to bolster the social safety net and combat climate change.

7685eaa5-Headwinds Mounting For World Economy Into Final Stretch of 2021

The U.S. Capitol in Washington, D.C., U.S., on Sunday, Oct. 3, 2021.(Photographer: Samuel Corum/Bloomberg via Getty Images

The safety net measure has a price tag of $3.5 trillion but is expected to be scaled back to around $2 trillion to meet the objections of moderate Democrats such as Sen. Joe Manchin of West Virginia.

As a percentage of the overall economy, as measured by the gross domestic product, the 2021 deficit represents 12.4% of GDP, down from the 2020 deficit, which was 15% of GDP.

In their comments Yellen and Young credited Biden's economic policies for contributing to a lower deficit, including Biden's "swift action to mount a historic vaccination effort" and his success in getting Congress to approve $1.9 trillion in extra spending in the stimulus bill passed in March.

"While the nation's economic recovery is stronger than those of other wealthy nations, it is still fragile," Yellen said. "In order to build upon the progress that has been made ... Congress should pass President Biden's Build Back Better plan."